Celestica Announces Fourth Quarter and Fiscal Year 2011 Financial Results16:00 EST Thursday, January 26, 2012
(All amounts in U.S. dollars.
Per share information based on diluted
shares outstanding unless noted otherwise).
TORONTO, Jan. 26, 2012 /PRNewswire/ - Celestica Inc. (NYSE, TSX: CLS), a global
leader in the delivery of end-to-end product lifecycle solutions, today
announced financial results for the fourth quarter and fiscal year
ended December 31, 2011.
"Celestica continued to deliver strong operating results in the fourth
quarter, despite the volatility in customer demand," said Craig
Muhlhauser, President and CEO, Celestica. "With a continued focus on
operational effectiveness and revenue diversification, Celestica
delivered solid revenue and earnings growth and strong return on
invested capital in 2011, finishing the year with the best net cash
position among our major North American competitors."
"Given the economic uncertainty going into 2012, we remain focused on
making our customers successful by delivering the quality, speed and
flexibility they require in this challenging environment while
continuing to execute our strategy and deliver strong and consistent
financial returns."
Fourth Quarter and Fiscal Year 2011 Summary
Three months ended
December 31
Fiscal year ended
December 31
2010
2011
2010
2011
Revenue (in millions)...........................................
$1,876.1
$1,753.4
$6,526.1
$7,213.0
IFRS net earnings (in millions)............................
$38.4
$69.2
$101.2
$195.1
IFRS EPS(i) ........................................................
$0.17
$0.32
$0.44
$0.89
Adjusted net earnings (non-IFRS)
(in millions) (ii)..............................................................................
$61.3
$71.1
$197.7
$241.9
Adjusted net EPS (non-IFRS)(i) (ii)..................................
$0.27
$0.33
$0.86
$1.11
Non-IFRS return on invested capital(ii)........................
32.0%
27.5%
27.2%
27.5%
Non-IFRS operating margin(ii)...........................................
3.5%
3.8%
3.4%
3.6%
i.
IFRS net earnings for the fourth quarter of 2011 included an aggregate
charge of $0.08 (pre-tax) per share for the following recurring items:
stock-based compensation, amortization of intangible assets (excluding
computer software) and restructuring charges. This aggregate (pre-tax)
charge was slightly above the range provided on October 20, 2011 of
between $0.04 and $0.07 per share, primarily due to higher than
expected restructuring charges. Included in the fourth quarter of 2011
adjusted net EPS (non-IFRS) of $0.33 is an income tax benefit of $0.05
per share arising from settlement of tax audits.
ii.
Non-IFRS measures do not have any standardized meaning prescribed by
IFRS and are not necessarily comparable to similar measures presented
by other companies using IFRS and other generally accepted accounting
principles (GAAP). ee Schedule 1 for non-IFRS definitions and a
reconciliation of non-IFRS to IFRS measures.
Fiscal Year 2011 Highlights
Revenue: $7.2 billion, up 11% from prior year
IFRS EPS: $0.89 per share, up 102% from prior year
Adjusted net EPS (non-IFRS): $1.11 per share, up 29% from prior year
Free cash flow (non-IFRS): $144 million, up 36% from prior year
Diversified end markets: 14% of total revenue, up from 12% of total
revenue in prior year
Fourth Quarter 2011 Highlights
Revenue: $1.75 billion, in line with guidance of $1.70 to $1.85 billion
(announced October 20, 2011)
IFRS EPS: $0.32 per share, up 88% from prior year
Adjusted net EPS (non-IFRS): $0.33 per share, compared to guidance of
$0.23 to $0.29 (announced October 20, 2011; guidance did not include
$0.05 per share of income tax benefit arising from settlement of tax
audits)
Free cash flow (non-IFRS): $89 million, up 191% from prior year
Diversified end markets: 18% of total revenue, up from 11% of total
revenue in prior year
End Markets by Quarter
The following table sets forth revenue by end market as a percentage of
total revenue:
2010
2011
Q1
Q2
Q3
Q4
FY
Q1
Q2
Q3
Q4
FY
Consumer...........................
28%
26%
24%
24%
25%
26%
25%
25%
26%
25%
Diversified(iii).................................
10%
11%
12%
11%
12%
11%
13%
16%
18%
14%
Enterprise Communications
22%
24%
25%
24%
24%
25%
25%
26%
25%
26%
Servers...............................
12%
14%
13%
17%
14%
15%
17%
14%
13%
15%
Storage..............................
14%
12%
12%
12%
12%
12%
11%
11%
10%
11%
Telecommunications...........
14%
13%
14%
12%
13%
11%
9%
8%
8%
9%
Revenue (in billions)...........
$1.52
$1.59
$1.55
$1.88
$6.53
$1.80
$1.83
$1.83
$1.75
$7.21
iii. Our diversified end market is comprised of industrial, aerospace
and defense, healthcare, green technology and other.
Celestica announced expected launch of share repurchase plan
Celestica has announced its expectation to file with the Toronto Stock
Exchange (TSX), a notice of intention to commence a new Normal Course
Issuer Bid (NCIB). Subject to the acceptance of the notice by the TSX,
the company expects to repurchase, at its discretion during the
following 12 months, up to 10% of the public float of its subordinate
voting shares.
First Quarter 2012 Outlook
For the first quarter ending March 31, 2012, the company anticipates
revenue to be in the range of $1.6 billion to $1.7 billion, and
adjusted net earnings per share to be in the range of $0.18 to $0.24.
The company expects a negative $0.05 to $0.07 per share (pre-tax)
aggregate impact on an IFRS basis for the following recurring items:
stock-based compensation and amortization of intangible assets
(excluding computer software).
Fourth Quarter Webcast
Management will host its fourth quarter results conference call today at
4:30 p.m. Eastern Standard Time. The webcast can be accessed at
www.celestica.com.
IFRS Reporting Commenced in 2011
Celestica has reported its financial results in accordance with
International Financial Reporting Standards (IFRS), as required for
public companies in Canada. The comparative financial information has
been restated to reflect the adoption of IFRS, with effect from January
1, 2010. Periods prior to January 1, 2010 will not be presented under
IFRS. The company has included a reconciliation between IFRS and the
amounts previously reported under Canadian GAAP in note 3 to the
attached unaudited financial statements. Although Celestica was
required to transition to IFRS, its major North American competitors
continue to report financial results under U.S. GAAP. IFRS did not
significantly impact the company's non-IFRS financial measures, which
the company presents to enable investors to compare Celestica's
financial results with those of its major North American competitors.
Supplementary Information
In addition to disclosing detailed results in accordance with IFRS,
Celestica provides supplementary non-IFRS measures to consider in
evaluating the company's operating performance. See Schedule 1.
Management uses adjusted net earnings and other non-IFRS measures to
assess operating performance and the effective use and allocation of
resources; to provide more meaningful period-to-period comparisons of
operating results; to enhance investors' understanding of the core
operating results of Celestica's business; and to set management
incentive targets.
About Celestica
Celestica is dedicated to delivering end-to-end product lifecycle
solutions to drive our customers' success. Through our simplified
global operations network and information technology platform, we are
solid partners who deliver informed, flexible solutions that enable our
customers to succeed in the markets they serve. Committed to providing
a truly differentiated customer experience, our agile and adaptive
employees share a proud history of demonstrated expertise and
creativity that provides our customers with the ability to overcome any
challenge.
For further information on Celestica, visit its website at http://www.celestica.com. The company's security filings can also be accessed at http://www.sedar.com and http://www.sec.gov.
Safe Harbor and Fair Disclosure Statement
This news release contains forward-looking statements related to our
future growth, trends in our industry, our financial or operational
results including our quarterly earnings and revenue guidance,
anticipated expenses, benefits or payments, our financial or
operational performance, our expected tax outcomes, our cash flows and
financial targets, the effect of the global economic environment on
customer demand, and the filing of a notice of intention to commence a
NCIB, and the number of subordinate voting shares to be repurchased
thereunder. Such forward-looking statements are predictive in nature
and may be based on current expectations, forecasts or assumptions
involving risks and uncertainties that could cause actual outcomes and
results to differ materially from the forward-looking statements
themselves. Such forward-looking statements may, without limitation,
be preceded by, followed by, or include words such as "believes",
"expects", "anticipates", "estimates", "intends", "plans", or similar
expressions, or may employ such future or conditional verbs as "may",
"will", "should" or "would", or may otherwise be indicated as
forward-looking statements by grammatical construction, phrasing or
context. For those statements, we claim the protection of the safe
harbor for forward-looking statements contained in the U.S. Private
Securities Litigation Reform Act of 1995, and in any applicable
Canadian securities legislation. Forward-looking statements are not
guarantees of future performance. You should understand that the
following important factors could affect our future results and could
cause those results to differ materially from those expressed in such
forward-looking statements: the effects of price competition and other
business and competitive factors generally affecting the electronics
manufacturing services (EMS) industry; our dependence on a limited
number of customers and on our customers' ability to compete and
succeed in their marketplace for the products we manufacture;
variability of operating results among periods; the challenges of
effectively managing our operations and our working capital performance
during uncertain economic conditions, including responding to
significant changes in demand from our customers; the challenges of
managing changing commodity and labor costs; our inability to retain or
expand our business due to execution problems relating to the ramping
of new programs; the delays in the delivery and/or general availability
of various components and materials used in our manufacturing process;
disruptions to our operations, or those of our customers, component
suppliers, or our logistics partners, resulting from local events
including natural disasters, political instability, labor and social
unrest, criminal activity and other risks present in the jurisdictions
in which we operate; our dependence on industries affected by rapid
technological change; our ability to successfully manage our
international operations; increasing income taxes and our ability to
successfully defend tax audits or meet the conditions of tax
incentives; the challenge of managing our financial exposures to
foreign currency volatility; the completion of our restructuring
activities or integration of our acquisitions; the risk of potential
non-performance by counterparties, including but not limited to
financial institutions, customers and suppliers; and the risk of the
TSX not accepting our notice of intention to commence a NCIB. These and
other risks and uncertainties, as well as other information related to
the company, are discussed in the company's various public filings at
www.sedar.com and www.sec.gov, including our Annual Report on Form 20-F
and subsequent reports on Form 6-K filed with the U.S. Securities and
Exchange Commission and our Annual Information Form filed with the
Canadian securities regulators. Forward-looking statements are provided
for the purpose of providing information about management's current
expectations and plans relating to the future. Readers are cautioned
that such information may not be appropriate for other purposes. Except
as required by applicable law, we disclaim any intention or obligation
to update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
Our revenue and earnings guidance, as contained in this press release,
is based on various assumptions which management believes are
reasonable under the current circumstances, but may prove to be
inaccurate, and many of which involve factors that are beyond the
control of the company. The material assumptions may include the
following: forecasts from our customers, which range from 30 to 90 days
and can fluctuate significantly in terms of volume and mix of products
or services; the timing, execution of, and investments associated with
ramping new business; the success in the marketplace of our customers'
products, general economic and market conditions; currency exchange
rates; pricing and competition; anticipated customer demand; supplier
performance and pricing; commodity, labor, energy and transportation
costs; operational and financial matters; and technological
developments. These assumptions and estimates are based on management's
current views with respect to current plans and events, and are and
will be subject to the risks and uncertainties referred to above. It
is Celestica's policy that revenue and earnings guidance is effective
on the date given, and will only be updated through a public
announcement.
Supplementary Non-IFRS Measures
Our non-IFRS measures include gross profit, gross margin (gross profit
as a percentage of revenue), selling, general and administrative
expenses (SG&A), SG&A as a percentage of revenue, operating earnings
(EBIAT), operating margin (EBIAT as a percentage of revenue), adjusted
net earnings, adjusted net earnings per share, return on invested
capital (ROIC), free cash flow, cash cycle days and inventory turns. In
calculating these non-IFRS financial measures, management excludes the
following items, as applicable: stock-based compensation, amortization
of intangible assets (excluding computer software), restructuring and
other charges (most significantly restructuring charges), the
write-down of goodwill, intangible assets and property, plant and
equipment, and gains or losses related to the repurchase of shares or
debt, net of tax adjustments and significant deferred tax write-offs or
recoveries.
These non-IFRS measures do not have any standardized meaning prescribed
by IFRS and are not necessarily comparable to similar measures
presented by other companies using IFRS, or our North American
competitors who report under U.S. GAAP and use non-U.S. GAAP measures
to describe similar operating metrics. Non-IFRS measures are not
measures of performance under IFRS and should not be considered in
isolation or as a substitute for any standardized measure under IFRS.
The most significant limitation to management's use of non-IFRS
financial measures is that the charges and expenses excluded from the
non-IFRS measures are nonetheless charges that are recognized under
IFRS and that have an economic impact on the company. Management
compensates for these limitations primarily by issuing IFRS results to
show a complete picture of the company's performance, and reconciling
non-IFRS results back to IFRS, unless there are no comparable IFRS
measures.
The economic substance of these exclusions and management's rationale
for excluding these from non-IFRS financial measures is provided below:
Stock-based compensation, which represents the estimated fair value of
stock options, restricted stock units and performance stock units
granted to employees, is excluded because grant activities vary
significantly from quarter-to-quarter in both quantity and fair value.
In addition, excluding this expense allows us to better compare core
operating results with those of our competitors who also generally
exclude stock-based compensation from their core operating results, who
may have different granting patterns and types of equity awards, and
who may use different option valuation assumptions than we do,
including those competitors who use U.S. GAAP and non-U.S. GAAP
measures to present similar metrics.
Amortization charges (excluding computer software) consist of non-cash charges against
intangible assets that are impacted by the timing and magnitude of
acquired businesses. Amortization of intangibles varies among
competitors, and we believe that excluding these charges permits a
better comparison of core operating results with those of our
competitors who also generally exclude amortization charges.
Restructuring and other charges (recoveries), which consist primarily of
employee severance, lease termination and facility exit costs
associated with closing and consolidating manufacturing facilities,
reductions in infrastructure and acquisition-related transaction costs,
are excluded because such charges are not directly related to ongoing
operating results and do not reflect expected future operating expenses
after completion of these activities. We believe that excluding these
charges permits a better comparison of our core operating results with
those of our competitors who also generally exclude these costs in
assessing operating performance.
Impairment charges, which consist of non-cash charges against goodwill,
intangible assets and property, plant and equipment, result primarily
when the carrying value of these assets exceeds their fair value.
These charges are excluded because they are generally non-recurring. In
addition, our competitors may record impairment charges at different
times and excluding these charges permits a better comparison of our
core operating results with those of our competitors who also generally
exclude these charges in assessing operating performance.
Gains or losses related to the repurchase of shares or debt are excluded
as these gains or losses do not impact core operating performance and
vary significantly among our competitors who also generally exclude
these charges in assessing operating performance.
Significant deferred tax write-offs or recoveries are excluded as these
write-offs or recoveries do not impact core operating performance and
vary significantly among our competitors who also generally exclude
these charges in assessing operating performance.
The following table sets forth, for the periods indicated, a
reconciliation of IFRS to non-IFRS measures (in millions, except per
share amounts):
Three months ended
December 31
Year ended
December 31
2010
2011
2010
2011
% of
revenue
% of
revenue
% of
revenue
% of
revenue
Revenue
$ 1,876.1
$ 1,753.4
$ 6,526.1
$ 7,213.0
IFRS gross profit
$ 122.6
6.5%
$ 122.1
7.0%
$ 444.1
6.8%
$ 491.4
6.8%
Stock-based compensation
5.8
3.8
16.6
15.5
Non-IFRS gross profit
$ 128.4
6.8%
$ 125.9
7.2%
$ 460.7
7.1%
$ 506.9
7.0%
IFRS SG&A
$ 68.7
3.7%
$ 58.5
3.3%
$ 252.1
3.9%
$ 253.4
3.5%
Stock-based compensation
(9.2)
(5.9)
(25.3)
(28.7)
Non-IFRS SG&A
$ 59.5
3.2%
$ 52.6
3.0%
$ 226.8
3.5%
$ 224.7
3.1%
IFRS earnings before income taxes
$ 35.1
1.9%
$ 54.2
3.1%
$ 119.4
1.8%
$ 198.8
2.8%
Finance costs
0.7
1.1
6.9
5.4
Stock-based compensation
15.0
9.7
41.9
44.2
Amortization of intangible assets (excluding
computer software)
1.8
0.8
5.9
6.2
Restructuring and other charges
4.6
1.0
32.0
6.5
Impairment charges
9.1
-
9.1
-
Losses related to the repurchase of shares
or debt
-
-
8.8
-
Non-IFRS operating earnings (EBIAT) (1)
$ 66.3
3.5%
$ 66.8
3.8%
$ 224.0
3.4%
$ 261.1
3.6%
IFRS net earnings
$ 38.4
2.0%
$ 69.2
3.9%
$ 101.2
1.6%
$ 195.1
2.7%
Stock-based compensation
15.0
9.7
41.9
44.2
Amortization of intangible assets (excluding
computer software)
1.8
0.8
5.9
6.2
Restructuring and other charges
4.6
1.0
32.0
6.5
Impairment charges
9.1
-
9.1
-
Losses related to the repurchase of shares
or debt
-
-
8.8
-
Adjustments for taxes
(7.6)
(9.6)
(1.2)
(10.1)
Non-IFRS adjusted net earnings
$ 61.3
3.3%
$ 71.1
4.1%
$ 197.7
3.0%
$ 241.9
3.4%
Diluted EPS
Weighted average # of shares (in millions)
- IFRS
223.5
218.7
230.1
218.3
IFRS earnings per share
$ 0.17
$ 0.32
$ 0.44
$ 0.89
Weighted average # of shares (in millions) -
Non-IFRS
223.5
218.7
230.1
218.3
Non-IFRS adjusted net earnings per share
$ 0.27
$ 0.33
$ 0.86
$ 1.11
IFRS cash provided by operations
$ 55.3
$ 96.8
$ 165.9
$ 196.3
Purchase of property, plant and equipment, net
of sales proceeds
(23.4)
(6.8)
(44.9)
(45.2)
Finance costs paid
(1.3)
(1.0)
(15.0)
(7.0)
Non-IFRS free cash flow (2)
$ 30.6
$ 89.0
$ 106.0
$ 144.1
ROIC % (3)
32.0%
27.5%
27.2%
27.5%
(1)
EBIAT is defined as earnings before interest, amortization of
intangibles assets (excluding computer software) and income taxes.
EBIAT also excludes stock-based compensation, restructuring and other
charges, gains or losses related to the repurchase of shares or debt,
and impairment charges.
(2)
Management uses free cash flow as a measure, in addition to cash flow
from operations, to assess operational cash flow performance. We
believe free cash flow provides another level of transparency to our
liquidity as it represents cash generated from or used in operating
activities after the purchase of capital equipment and property (net of
proceeds from sale of certain surplus equipment and property) and
finance costs paid.
(3)
Management uses ROIC as a measure to assess the effectiveness of the
invested capital it uses to build products or provide services to our
customers. Our ROIC measure includes operating margin, working capital
management and asset utilization. ROIC is calculated by dividing EBIAT
by average net invested capital. Net invested capital consists of total
assets less cash, accounts payable, accrued and other current
liabilities and provisions, and income taxes payable. We use a
two-point average to calculate average net invested capital for the
quarter and a five-point average to calculate average net invested
capital for the year. There is no comparable measure under IFRS.
The following table sets forth, for the periods indicated, our
calculation of ROIC % (in millions, except ROIC %):
Three months ended
December 31
Year ended
December 31
2010
2011
2010
2011
Non-IFRS operating earnings (EBIAT)
$ 66.3
$ 66.8
$ 224.0
$ 261.1
Multiplier
4
4
1
1
Annualized EBIAT
$ 265.2
$ 267.2
$ 224.0
$ 261.1
Average net invested capital for the period
$ 828.8
$ 972.1
$ 822.8
$ 950.7
ROIC %
32.0%
27.5%
27.2%
27.5%
December 31
March 31
June 30
September 30
December 31
2010
2011
2011
2011
2011
Net invested capital consists of:
Total assets
$ 3,013.9
$ 2,997.3
$ 3,020.6
$ 2,914.8
$ 2,969.6
Less: cash
632.8
584.0
552.6
586.1
658.9
Less: accounts payable, accrued and other current liabilities,
provisions and income taxes payable
1,552.6
1,483.1
1,417.3
1,348.6
1,346.6
Net invested capital by quarter
$ 828.5
$ 930.2
$ 1,050.7
$ 980.1
$ 964.1
December 31
March 31
June 30
September 30
December 31
2009
2010
2010
2010
2010
Net invested capital consists of:
Total assets
$ 3,021.8
$ 2,808.6
$ 2,697.3
$ 2,831.2
$ 3,013.9
Less: cash
937.7
712.2
683.9
705.6
632.8
Less: accounts payable, accrued and other current liabilities,
provisions and income taxes payable
1,298.3
1,270.8
1,168.4
1,296.5
1,552.6
Net invested capital by quarter
$ 785.8
$ 825.6
$ 845.0
$ 829.1
$ 828.5
GUIDANCE SUMMARY
Q4 11 Guidance
Q4 11 Actual
Q1 12 Guidance(4)
Revenue
$1.70B - $1.85B
$1.75B
$1.6B - $1.7B
Adjusted net EPS (diluted) (5)
$0.23 - $0.29
$0.33
$0.18 - $0.24
(4)
We expect a negative $0.05 to $0.07 per share (diluted) pre-tax
aggregate impact on an IFRS basis for the following recurring items:
stock-based compensation and amortization of intangible assets
(excluding computer software).
(5)
Included in the fourth quarter of 2011 adjusted net EPS is an income tax
benefit of $0.05 per share arising from the settlement of tax audits.
CELESTICA INC.
CONSOLIDATED BALANCE SHEET
(in millions of U.S. dollars)
(unaudited)
January 1
December 31
December 31
2010
2010
2011
Assets
Current assets:
Cash and cash equivalents (note 14) ..................
$ 937.7
$ 632.8
$ 658.9
Accounts receivable (note 6) ...............................
828.1
945.1
810.8
Inventories (note 7) .............................................
676.1
845.7
880.7
Income taxes receivable ......................................
21.2
15.6
9.1
Assets classified as held-for-sale ........................
22.8
35.5
32.1
Other current assets ............................................
74.5
87.0
71.0
Total current assets ...............................................
2,560.4
2,561.7
2,462.6
Property, plant and equipment ...............................
371.5
332.2
322.7
Goodwill .................................................................
--
14.6
48.0
Intangible assets ....................................................
33.1
33.6
35.5
Deferred income taxes ...........................................
25.1
41.9
41.4
Other non-current assets .......................................
31.7
29.9
59.4
Total assets ...........................................................
$ 3,021.8
$ 3,013.9
$ 2,969.6
Liabilities and Equity
Current liabilities:
Accounts payable ................................................
$ 927.1
$ 1,176.2
$ 1,002.6
Accrued and other current liabilities ....................
261.1
279.1
268.7
Income taxes payable ..........................................
38.0
55.4
39.0
Current portion of provisions ...............................
72.1
41.9
36.3
Current portion of long-term debt (note 8(b)) ........
222.8
--
--
Total current liabilities ............................................
1,521.1
1,552.6
1,346.6
Retirement benefit obligations ................................
116.0
129.3
120.5
Provisions and other non-current liabilities ............
7.1
12.9
11.1
Deferred income taxes ...........................................
31.9
36.2
27.6
Total
liabilities ........................................................
1,676.1
1,731.0
1,505.8
Equity:
Capital stock (note 9) ..........................................
3,591.2
3,329.4
3,348.0
Treasury stock (note 9) .......................................
(0.4)
(15.9)
(37.9)
Contributed surplus .............................................
222.7
360.9
369.5
Deficit .................................................................
(2,476.7)
(2,403.8)
(2,203.5)
Accumulated other comprehensive income (loss)
8.9
12.3
(12.3)
Total
equity ............................................................
1,345.7
1,282.9
1,463.8
Total liabilities and equity .......................................
$ 3,021.8
$ 3,013.9
$ 2,969.6
Contingencies (note 15)
Subsequent event (note 9)
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
CELESTICA INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in millions of U.S. dollars, except per share amounts)
(unaudited)
Three months ended
December 31
Year ended
December 31
2010
2011
2010
2011
Revenue
............................................................................
$ 1,876.1
$ 1,753.4
$ 6,526.1
$ 7,213.0
Cost of sales
.....................................................................
1,753.5
1,631.3
6,082.0
6,721.6
Gross profit
.......................................................................
122.6
122.1
444.1
491.4
Selling, general and administrative expenses (SG&A) ........
68.7
58.5
252.1
253.4
Research and development ...............................................
--
4.7
--
13.8
Amortization of intangible assets
........................................
4.4
2.6
15.8
13.5
Other charges (note 11)
....................................................
13.7
1.0
49.9
6.5
Earnings from operations
..................................................
35.8
55.3
126.3
204.2
Finance costs
....................................................................
0.7
1.1
6.9
5.4
Earnings before income taxes ...........................................
35.1
54.2
119.4
198.8
Income tax expense (recovery) (note 13):
Current
...........................................................................
5.2
(5.6)
33.4
10.3
Deferred
.........................................................................
(8.5)
(9.4)
(15.2)
(6.6)
(3.3)
(15.0)
18.2
3.7
Net earnings for the period
................................................
$ 38.4
$ 69.2
$ 101.2
$ 195.1
Basic earnings per share
..................................................
$ 0.17
$ 0.32
$ 0.44
$ 0.90
Diluted earnings per share
................................................
$ 0.17
$ 0.32
$ 0.44
$ 0.89
Shares used in computing per share amounts (in millions):
Basic
..............................................................................
221.4
216.6
227.8
216.3
Diluted
............................................................................
223.5
218.7
230.1
218.3
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
CELESTICA INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions of U.S. dollars)
(unaudited)
Three months ended
December 31
Year ended
December 31
2010
2011
2010
2011
Net earnings for the period
........................................................
$ 38.4
$ 69.2
$ 101.2
$ 195.1
Other comprehensive income (loss), net of tax:
Actuarial gains (losses) on pension plans (notes 3(a) and 10)....
(28.3)
5.2
(28.3)
5.2
Currency translation differences for foreign operations ..............
(0.3)
(3.7)
1.6
(1.7)
Change from derivatives designated as hedges .........................
(1.8)
1.0
1.8
(22.9)
Total comprehensive income for the period
..................................
$ 8.0
$ 71.7
$ 76.3
$ 175.7
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
CELESTICA INC.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(in millions of U.S. dollars)
(unaudited)
Capital stock
(note 9)
Treasury
stock (note 9)
Contributed
surplus
Deficit
Accumulated
other
comprehensive
income
(loss) (a)
Balance ? January 1, 2010
.................................................
$ 3,591.2
$ (0.4)
$ 222.7
$ (2,476.7)
$ 8.9
Capital transactions:
Issuance of capital stock
....................................................
6.6
--
--
--
--
Repurchase of capital stock (note 9) .................................
(268.4)
--
127.8
--
--
Purchase of treasury stock
................................................
--
(26.2)
--
--
--
Stock-based compensation and other ...............................
--
10.7
19.6
--
--
Reclassification of cash-settled stock-based compensation
to accrued liabilities (note 9)
..............................................
--
--
(9.2)
--
--
Total comprehensive income:
Net earnings for 2010
........................................................
--
--
--
101.2
--
Other comprehensive income for the year, net of tax:
Actuarial losses on pension plans (note 3(a)) .................
--
--
--
(28.3)
--
Currency translation differences for foreign operations ...
--
--
--
--
1.6
Change from derivatives designated as hedges ..............
--
--
--
--
1.8
Balance ? December 31, 2010 ............................................
$ 3,329.4
$ (15.9)
$ 360.9
$ (2,403.8)
$ 12.3
Capital transactions:
Issuance of capital stock
....................................................
18.6
--
(6.7)
--
--
Purchase of treasury stock
................................................
--
(49.4)
--
--
--
Stock-based compensation and other ................................
--
27.4
15.3
--
--
Total comprehensive income:
Net earnings for 2011
........................................................
--
--
--
195.1
--
Other comprehensive income for the year, net of tax:
Actuarial gains on pension plans (note 10) .....................
--
--
--
5.2
--
Currency translation differences for foreign operations ...
--
--
--
--
(1.7)
Change from derivatives designated as hedges ..............
--
--
--
--
(22.9)
Balance ? December 31, 2011 ............................................
$ 3,348.0
$ (37.9)
$ 369.5
$ (2,203.5)
$ (12.3)
(a) Accumulated other comprehensive income (loss) is net of tax.
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
CELESTICA INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions of U.S. dollars)
(unaudited)
Three months ended
December 31
Year ended
December 31
2010
2011
2010
2011
Cash provided by (used in):
Operating activities:
Net earnings for the period ............................................
$ 38.4
$ 69.2
$ 101.2
$ 195.1
Adjustments for items not affecting cash:
Depreciation and amortization .....................................
21.0
18.9
87.0
77.2
Equity-settled stock-based compensation ...................
7.7
9.7
31.3
41.2
Other charges (recoveries) .........................................
6.9
(6.7)
14.8
(12.1)
Finance costs
..............................................................
0.7
1.1
6.9
5.4
Income tax expense (recovery) ....................................
(3.3)
(15.0)
18.2
3.7
Other
............................................................................
(4.1)
(24.5)
(7.7)
(31.3)
Changes in non-cash working capital items:
Accounts receivable ....................................................
(164.9)
(32.7)
(111.8)
147.0
Inventories
...................................................................
(81.4)
59.1
(162.8)
2.0
Other current assets
....................................................
(7.9)
(5.7)
(11.9)
3.9
Accounts payable, accrued and other current liabilities
and provisions
.............................................................
246.2
19.4
211.4
(216.9)
Non-cash working capital changes .................................
(8.0)
40.1
(75.1)
(64.0)
Net income taxes received (paid) ...................................
(4.0)
4.0
(10.7)
(18.9)
Net cash provided by operating activities .......................
55.3
96.8
165.9
196.3
Investing activities:
Acquisitions, net of cash acquired (note 4) ....................
?
?
(16.2)
(80.5)
Purchase of computer software and property, plant
and equipment
...............................................................
(25.3)
(14.8)
(60.8)
(62.3)
Proceeds from sale of assets .........................................
1.9
8.0
15.9
17.1
Net cash used in investing activities ...............................
(23.4)
(6.8)
(61.1)
(125.7)
Financing activities:
Repurchase of Senior Subordinated Notes (Notes)
(note 8(b))
....................................................................
?
?
(231.6)
?
Repurchase of capital stock (note 9) .............................
(103.3)
?
(140.6)
?
Issuance of capital stock (note 9) ...................................
0.6
0.4
4.6
11.9
Purchase of treasury stock (note 9) ...............................
?
(16.6)
(26.2)
(49.4)
Finance costs paid
.........................................................
(1.3)
(1.0)
(15.0)
(7.0)
Other
.............................................................................
(0.7)
?
(0.9)
?
Net cash used in financing activities ...............................
(104.7)
(17.2)
(409.7)
(44.5)
Net increase (decrease) in cash and cash equivalents ...
(72.8)
72.8
(304.9)
26.1
Cash and cash equivalents, beginning of period ............
705.6
586.1
937.7
632.8
Cash and cash equivalents, end of period .....................
$ 632.8
$ 658.9
$ 632.8
$ 658.9
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except per share amounts)
(unaudited)
1. REPORTING ENTITY
Celestica Inc. (Celestica) is incorporated in Canada with its corporate
headquarters located at 844 Don Mills Road, Toronto, Ontario, M3C 1V7.
Celestica is a publicly listed company on the Toronto Stock Exchange
(TSX) and the New York Stock Exchange (NYSE).
Celestica delivers innovative supply chain solutions on a global basis
to original equipment manufacturers (OEMs) and service providers in the
communications (comprised of enterprise communications and
telecommunications), consumer, computing (comprised of servers and
storage), and diversified (comprised of industrial, aerospace and
defense, healthcare, green technology and other) end markets. Our
product lifecycle solutions include a full range of services to our
customers including design, manufacturing, engineering, complex
mechanical and systems integration, order fulfillment, logistics and
after-market services.
2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
Statement of compliance:
These unaudited interim consolidated financial statements have been
prepared in accordance with International Accounting Standard (IAS) 34,
Interim Financial Reporting as issued by the International Accounting Standards Board (IASB) and
accounting policies we adopted in accordance with International
Financial Reporting Standards (IFRS).
Our unaudited interim consolidated financial statements are prepared in
accordance with IFRS and its interpretations adopted by the IASB,
including IFRS 1, First-time Adoption of International Financial Reporting Standards. We have elected January 1, 2010 as the date of transition to IFRS
(Transition Date). Previously, we prepared our consolidated financial
statements in accordance with generally accepted accounting principles
in Canada (GAAP). GAAP differs in some policies from IFRS. In
accordance with the transition rules, we have retroactively applied
IFRS to our comparative data for 2010.
These unaudited interim consolidated financial statements should be read
in conjunction with our 2010 annual consolidated financial statements
prepared in accordance with GAAP and with our IFRS accounting policies,
transition disclosures and selected annual disclosures in notes 2, 3
and 12, respectively, of our unaudited interim consolidated financial
statements for the three months ended March 31, 2011.
In note 3, we have presented reconciliations and descriptions of the
effect of our transition from GAAP to IFRS on our equity, net earnings
and comprehensive income for the 2010 comparative periods.
The unaudited interim consolidated financial statements were authorized
for issuance by our board of directors on January 26, 2012.
Functional and presentation currency:
These unaudited interim consolidated financial statements are presented
in U.S. dollars, which is also our functional currency. All financial
information is presented in millions of U.S. dollars (except per share
amounts).
Use of estimates and judgments:
The preparation of financial statements in conformity with IFRS requires
management to make judgments, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets
and liabilities, revenue and expenses and the related disclosures of
contingent assets and liabilities. Actual results could differ
materially from these estimates and assumptions. We review our
estimates and underlying assumptions on an ongoing basis. Revisions
are recognized in the period in which the estimates are revised and may
impact future periods as well.
We have applied significant estimates and assumptions to our valuations
against inventory and income taxes, to the amount and timing of
restructuring charges or recoveries, to the measurement of the
recoverable amount of our cash generating units (CGU), and to valuing
our financial instruments, pension costs, stock-based payments,
provisions and contingencies. These unaudited interim consolidated
financial statements are based upon accounting policies and estimates
consistent with those used and described in note 2 of our unaudited
interim consolidated financial statements for the three months ended
March 31, 2011.
3. TRANSITION TO IFRS
We adopted IFRS on January 1, 2011. We have applied IFRS retroactively
to our comparative data as of January 1, 2010, the Transition Date.
RECONCILIATION OF GAAP TO IFRS:
The following tables set forth, for the periods indicated, a
reconciliation from GAAP to IFRS, of our equity, net earnings and
comprehensive income:
January 1
December 31
Reconciliation of equity:
Notes
2010
2010
Equity in accordance with GAAP .......................................
$ 1,475.8
$ 1,421.3
Employee benefits
............................................................
a
(130.4)
(152.4)
Restructuring provision
.....................................................
b
(1.3)
9.8
Income taxes
.....................................................................
c
1.6
5.6
Business combinations
.....................................................
d
--
(1.0)
Other
................................................................................
--
(0.4)
Equity in accordance with IFRS .........................................
$ 1,345.7
$ 1,282.9
Three months
ended
December 31
Year ended
December 31
Reconciliation of net earnings:
Notes
2010
2010
Net earnings in accordance with GAAP .............................
$ 25.6
$ 80.8
Employee benefits (includes related foreign exchange)....
a
0.9
6.7
Restructuring provision
.....................................................
b
10.4
11.1
Income taxes
.....................................................................
c
2.4
3.6
Business combinations
.....................................................
d
--
(1.0)
Stock-based compensation ...............................................
f
(0.4)
0.4
Other
................................................................................
(0.5)
(0.4)
IFRS adjustments to net earnings .......................................
12.8
20.4
Net earnings in accordance with IFRS ................................
$ 38.4
$ 101.2
Three months
ended
December 31
Year ended
December 31
Reconciliation of comprehensive income:
Notes
2010
2010
Comprehensive income in accordance with GAAP ............
$ 23.5
$ 84.2
IFRS adjustments to net earnings as above .....................
12.8
20.4
Actuarial losses on pension plans, net of tax ....................
a
(28.3)
(28.3)
Comprehensive income in accordance with IFRS .............
$ 8.0
$ 76.3
Transitional adjustments:
(a) Employee benefits and actuarial losses on pension plans:
Under GAAP, actuarial gains and losses arising from defined benefit and
post-retirement benefit plans were deferred and amortized to operations
over time using the corridor approach. Under IFRS, we elected to
recognize all cumulative actuarial gains or losses deferred under GAAP
through deficit at the Transition Date. At December 31, 2009, we had
$140.3 of unrecognized actuarial losses under GAAP. Under GAAP, prior
service costs or credits were deferred and amortized to operations over
the remaining service period or life expectancy. Under IFRS, we
recognized vested prior service credits deferred under GAAP through
deficit at the Transition Date. At December 31, 2009, we had $9.9 of
unrecognized vested prior service credits under GAAP.
At December 31, 2009, the balance of our pension asset and pension
obligations under GAAP were $104.4 and $75.4, respectively. Compared to
GAAP, the IFRS pension-related transitional adjustments had the
following effect on the consolidated balance sheet:
January 1
December 31
2010
2010
Decrease in pension asset (included in other non-current assets)
.........
$ 89.8
$ 104.3
Increase in retirement benefit obligations
.............................................
40.6
48.1
$ 130.4
$ 152.4
Employee benefit expense for the three months and year ended December
31, 2010 was lower under IFRS compared to GAAP by $0.9 and $6.7
(including the impact of related foreign exchange gains or losses on
the net pension liabilities recorded on transition), respectively, as
the employee benefit expense under IFRS excludes the impact of the
above actuarial losses and vested prior service credits that we
recorded directly through deficit on the Transition Date. Under IFRS,
we elected to recognize actuarial gains and losses incurred after the
Transition Date through other comprehensive income (OCI) and directly
in deficit. For the three months and year ended December 31, 2010, we
recognized actuarial losses of $28.3 ($28.7 less $0.4 of tax) through
OCI and deficit.
(b) Restructuring provision:
Under GAAP, we discounted significant restructuring provisions using the
discount rate at the time of initial measurement and we recorded no
adjustments to reflect subsequent changes in discount rates. Under
IFRS, we remeasure our provisions each reporting period using the
current period pre-tax discount rates. On the Transition Date, we
increased the restructuring provision liability by $1.3 to reflect the
impact of then current discount rates. For the three months and year
ended December 31, 2010, IFRS net earnings were higher than GAAP net
earnings by $0.2 and $0.4, respectively, to reflect changes in discount
rates during the period.
In addition, IFRS defers the recognition of restructuring charges until
the plans are implemented or announced to employees. Under GAAP, our
restructuring charges included $10.7 for actions not yet announced at
December 31, 2010, which we reversed under IFRS. We recorded these
charges during 2011 when we announced the actions. See note 11(a).
There were no restructuring adjustments related to unannounced actions
at the Transition Date. Our restructuring provision at January 1, 2010
was $45.3 (December 31, 2010 -- $20.0) under IFRS.
(c) Income taxes:
Under IFRS, we recognized net deferred income tax assets for temporary
differences arising from inter-company transfers of property and
equipment and to reflect the tax effect of revaluing foreign currency
denominated non-monetary balances, which were not required under GAAP.
We also recorded the deferred income tax effects of the other IFRS
adjustments.
(d) Business combinations:
Under IFRS, acquisition-related transaction costs are expensed as
incurred. As a result of transaction costs associated with our two
acquisitions in 2010, IFRS net earnings for the year ended December 31,
2010 were lower than GAAP net earnings by $1.0. Under GAAP, these costs
were capitalized as part of the purchase price allocation. IFRS also
requires that obligations for contingent consideration be recorded at
fair value at the acquisition date. Under GAAP, contingent
consideration is only recorded when the amounts are reasonably
estimable and the outcome is certain. For one acquisition in 2010, we
recorded additional goodwill of $4.5 under IFRS, with a corresponding
increase to other non-current provisions on the acquisition date.
Subsequent changes in the fair value of the contingent consideration
from the date of acquisition to the settlement date are generally
recorded in the consolidated statement of operations. At December 31,
2010, the fair value of the contingent consideration increased to $4.6
due to changes in foreign exchange rates. See note 4.
(e) Cumulative currency translation adjustment:
Under IFRS, we elected to clear our cumulative currency translation
balance to zero through equity on the Transition Date. We eliminated
$46.9 of cumulative currency translation gains from OCI and reduced our
deficit upon transition to IFRS. Total equity was not affected.
Other adjustments and reclassifications:
(f) Stock-based compensation:
Under GAAP, each grant was treated as a single arrangement and
compensation expense was determined at the time of grant and amortized
over the vesting period, generally three to four years, on a
straight-line basis. IFRS requires a separate calculation of
compensation expense for awards that vest in installments. Under IFRS,
compensation expense differs from GAAP due to the changing fair values
used for each installment and the timing of recognizing compensation
expense. Generally this results in accelerated expense recognition
under IFRS. On the Transition Date, we recognized additional
compensation expense of $11.7 which increased our deficit with a
corresponding offset to contributed surplus. Total equity was not
affected. Under IFRS as compared to GAAP, stock-based compensation
expense increased by $0.4 for the three months ended December 31, 2010,
and decreased by $0.4 for the year ended December 31, 2010.
(g) Assets classified as held-for-sale:
Under IFRS, we classified assets held-for-sale separately on the
consolidated balance sheet. Under GAAP, assets held-for-sale were
included with property, plant and equipment and long-term assets on the
consolidated balance sheet. On the Transition Date, we reclassified
assets held-for-sale of $22.8 to a separate line item. Total equity
was not affected by this reclassification. At December 31, 2010, we
had $35.5 in assets held-for-sale.
Cash flow:
The adoption of IFRS did not significantly impact our cash flows
compared to GAAP. Under IFRS, we reclassified $1.3 and $15.0 of
finance costs paid from operating activities to financing activities
for the three months and year ended December 31, 2010, respectively.
These costs were primarily for interest paid on our Notes prior to
redemption in March 2010. There were no changes to overall net cash
flows.
4. ACQUISITIONS
In June 2011, we acquired the semiconductor equipment contract
manufacturing operations of Brooks Automation, Inc. We acquired certain
assets located in Portland, Oregon and the shares of China-based Brooks
Automation Limited. The operations specialize in manufacturing complex
mechanical equipment and providing systems integration services to some
of the world's largest semiconductor equipment manufacturers.
The final purchase price of $80.5, net of cash acquired, was financed
from cash on hand and $45.0 from our revolving credit facility which we
have since repaid. Details of the final purchase price allocation are
as follows:
Current assets, net of cash acquired
.........................................................................
$ 49.9
Capital and other long-term assets
............................................................................
1.5
Customer intangible assets
........................................................................................
12.5
Goodwill
.....................................................................................................................
33.8
Current liabilities
........................................................................................................
(17.2)
$ 80.5
Through this acquisition, we established an entry into the semiconductor
capital equipment market, added capabilities to and diversified our
industrial service offering, and acquired an experienced design and
engineering workforce we can leverage with our existing customers. We
expect approximately one-third of the goodwill will be tax deductible.
We have expensed acquisition-related transaction costs of $0.6 through
other charges. These operations did not contribute significantly to our
overall consolidated results of operations for 2011.
In January 2010, we acquired Scotland-based Invec Solutions Limited
(Invec). Invec provides warranty management, repair and parts
management services to companies in the information technology and consumer
electronics markets. In August 2010, we completed the acquisition of
Austrian-based Allied Panels Entwicklungs-und Produktions GmbH (Allied
Panels), a medical engineering and manufacturing service provider that
offers concept-to-full-production solutions in medical devices with a
core focus on the diagnostic and imaging market. The total purchase
price for these two acquisitions was $18.3 and was financed with cash.
The amount of goodwill and amortizable intangible assets recorded on
the acquisition dates was $14.1 (the majority of which we expect will
not be tax deductible) and $16.1, respectively. The purchase price for
Allied Panels is subject to adjustment for contingent consideration
($4.5 was included in goodwill on the acquisition date) if specific
pre-determined financial targets are achieved through 2012. Subsequent
changes in the fair value of the contingent consideration from the date
of acquisition to the settlement date are generally recorded in the
consolidated statement of operations. At December 31, 2011, we reduced
the fair value of the contingent consideration to $3.2 by releasing
$1.3 through other charges in our consolidated statement of operations.
See note 11(d).
Pro forma disclosures: Revenue and earnings for the combined companies for each of the
reporting periods would not have been materially different had the
acquisitions in each year occurred at the beginning of the respective
periods.
5. SEGMENT AND CUSTOMER REPORTING
End markets:
The following table indicates revenue by end market as a percentage of
total revenue. Our revenue fluctuates from period-to-period depending
on numerous factors, including but not limited to: seasonality of
business, the mix and complexity of the products or services we
provide, the level of business and program wins or losses from new,
existing and disengaging customers, the phasing in or out of programs,
and changes in customer demand. We expect that the pace of
technological change, the frequency of OEMs transferring business among
EMS competitors and the constantly changing dynamics of the global
economy will also continue to impact our business from
period-to-period.
Three months ended
December 31
Year ended
December 31
2010
2011
2010
2011
Consumer
...............................................................................
24%
26%
25%
25%
Diversified
..............................................................................
11%
18%
12%
14%
Enterprise Communications
....................................................
24%
25%
24%
26%
Servers
...................................................................................
17%
13%
14%
15%
Storage
..................................................................................
12%
10%
12%
11%
Telecommunications
...............................................................
12%
8%
13%
9%
Customers:
For the fourth quarter and full year 2011, two customers individually
represented more than 10% of total revenue (fourth quarter and full
year 2010 -- one customer). Research In Motion accounted for 20% and
19% of total revenue, respectively, for the fourth quarter and full
year 2011 (fourth quarter and full year 2010 -- 20%).
6. ACCOUNTS RECEIVABLE
We have an agreement to sell up to $250.0 in accounts receivable
(subject to pre-determined limits by customer) to a third-party bank on
a committed basis. In November 2011, we amended our accounts receivable
facility to add a tranche that allows us to sell to two third-party
banks up to an additional $150.0 in accounts receivable on an
uncommitted basis. Both banks had a Standard and Poor's rating of A-1
at December 31, 2011. At December 31, 2011, we had sold $60.0 of
accounts receivable under this facility (December 31, 2010 ? $60.0).
The accounts receivable sold are removed from our consolidated balance
sheet and reflected as cash provided by operating activities in our
consolidated statement of cash flows. We pay interest and commitment
fees which we record through finance costs in our consolidated
statement of operations. This facility expires in November 2012.
7. INVENTORIES
We record our inventory provisions and valuation recoveries through cost of sales. We record inventory
provisions to reflect changes in the value of our inventory to net
realizable value, or valuation recoveries primarily to reflect realized
gains on the disposition of inventory previously written down. During
the fourth quarter of 2011, we recorded net inventory valuation
recoveries of $0.1 (fourth quarter of 2010 ? provision of $1.3). During
the full year 2011, we recorded a net inventory provision of $4.5 (full
year 2010 ? recovery of $5.0).
8. CREDIT FACILITIES AND LONG-TERM DEBT
(a) Credit facilities:
In January 2011, we renewed our revolving credit facility on generally
similar terms and conditions, and increased the size of the facility
from $200.0 to $400.0 with a maturity of January 2015. We are required
to comply with certain restrictive covenants including those relating
to debt incurrence, the sale of assets, a change of control and certain
financial covenants related to indebtedness, interest coverage and
liquidity. We pledged certain assets, including the shares of certain
North American subsidiaries, as security for borrowings under this
facility.
Borrowings under this facility bear interest at LIBOR or Prime rate for
the period of the draw plus a margin. The terms of these draws have
historically been less than 90 days. At December 31, 2011, no amounts
were drawn under this facility (December 31, 2010 ? no amounts drawn),
and we were in compliance with all covenants. Commitment fees paid in
2011 were $2.0. At December 31, 2011, we had $35.6 of letters of credit
outstanding, including $27.0 that were issued under our credit
facility.
We also have uncommitted bank overdraft facilities available for
intraday and overnight operating requirements which total $70.0 at
December 31, 2011. There were no amounts drawn under these overdraft
facilities at December 31, 2011.
During any period, we may borrow and repay amounts under these
facilities. The amounts we borrow and repay can vary significantly
from month-to-month depending upon our working capital and other cash
requirements.
(b) Senior Subordinated Notes:
In March 2010, we paid $231.6 to repurchase the remaining outstanding
Notes and recognized a loss of $8.8 in other charges. We redeemed all
of our outstanding Notes prior to March 31, 2010.
9. CAPITAL STOCK
In July 2010, we filed a Normal Course Issuer Bid (NCIB) with the TSX to
repurchase, at our discretion until the expiry of the NCIB on August 2,
2011, up to 18.0 million subordinate voting shares on the open market
or as otherwise permitted, subject to normal terms and limitations of
such bids. We repurchased and cancelled a total of 16.1 million
subordinate voting shares at a weighted average price of $8.75 per
share during the course of the NCIB. The maximum number of subordinate
voting shares we were permitted to repurchase for cancellation under
the NCIB was reduced by the 1.9 million subordinate voting shares we
purchased for employee equity-based incentive programs from the NCIB's
commencement. During the fourth quarter of 2010, we paid $103.3 (full
year 2010 ? $140.6) to repurchase subordinate voting shares for
cancellation. During 2011, we did not repurchase any subordinate voting
shares for cancellation.
In January 2012, we announced our expectation to file with the TSX, a
notice of intention to commence a new NCIB. Subject to acceptance of
the notice by the TSX, we expect to repurchase, at our discretion
during the following 12 months, up to 10% of the public float of our
subordinate voting shares.
From time-to-time, we pay cash for the purchase of subordinate voting
shares in the open market by a trustee to satisfy the delivery of
subordinate voting shares to employees upon vesting of share unit
awards under our long-term incentive plans. During the fourth quarter
and full year 2011, we paid $16.6 and $49.4, respectively, for the
trustee to purchase 2.0 million and 5.7 million subordinate voting
shares, respectively, in the open market. At December 31, 2011, the trustee held 4.5 million subordinate voting
shares, with an ascribed value of $37.9, for delivery under these
plans. We classify these shares for accounting purposes as treasury
stock until they are delivered to employees pursuant to the awards.
During 2010, we paid $26.2 for the trustee to purchase 2.8 million
subordinate voting shares in the open market. At December 31, 2010, the
trustee held 1.7 million subordinate voting shares with an ascribed
value of $15.9.
We elected to cash-settle certain restricted share unit (RSU) and
performance share unit (PSU) awards vesting in the first quarters of
2010 and 2011 due to limitations in the number of subordinate voting
shares we could purchase in the open market as a result of terms in our
Notes and our share buy-back program. Cash-settled awards are accounted
for as liabilities and remeasured based on our share price at each
reporting date until the settlement date, with a corresponding charge
to compensation expense. During the fourth quarter of 2010, we
reclassified the accumulated balance of $9.2, representing the grant
date market value of vested awards, from contributed surplus to accrued
liabilities. We also recorded additional compensation expense to
reflect the mark-to-market adjustment on these cash-settled awards of
$2.7 in the first quarter of 2011 (fourth quarter of 2010 ?$5.4; first
quarter of 2010 ? $2.2).
The following table outlines the activity for stock-based awards for
2011:
Number of awards (in millions)
Options
RSUs
PSUs (i)
Outstanding at December 31, 2010
.....................................................................
10.5
4.8
7.7
Granted (i)
.........................................................................................................
0.9
2.3
2.1
Exercised (ii)
......................................................................................................
(1.9)
(3.2)
(1.8)
Forfeited/expired
................................................................................................
(1.4)
(0.4)
(0.6)
Outstanding at December 31, 2011
.....................................................................
8.1
3.5
7.4
The weighted-average grant date fair value of options and share units
awarded:
$ 4.86
$ 9.78
$ 13.75
(i)
During the first quarter of 2011, we granted 2.1 million PSUs that vest
based on the achievement of a market performance condition based on
Total Shareholder Return (TSR). See note 2(m) of our March 31, 2011
unaudited interim consolidated financial statements for a description
of TSR. We estimated the grant date fair value of these PSUs using a
Monte Carlo simulation model. We expect to settle these awards with
subordinate voting shares purchased in the open market.
(ii)
During 2011, we received cash proceeds of $11.9 relating to the exercise
of stock options.
Total stock-based compensation expense was $9.7 and $44.2, respectively,
for the fourth quarter and full year 2011 (fourth quarter and full year
2010 -- $15.0 and $41.9, respectively). The amount of stock-based
compensation expense varies each period, and includes mark-to-market
adjustments for awards we settle in cash (see above), and plan
adjustments. Our performance based compensation expense generally
varies depending on the level of achievement of pre-determined
performance goals and financial targets. During the first quarter of
2011, we amended the retirement eligibility clauses in our long-term
incentive plans which accelerated our recognition of the related
compensation expense of $4.8.
10. PENSION PLANS
We provide pension and non-pension post-employment benefit plans for our
employees. Our obligations are determined based on actuarial
valuations. Actuarial gains or losses arising from defined benefit and
post-retirement benefit plans are recorded through OCI and directly in
deficit. For 2011, we recognized $5.2 of actuarial gains, net of tax
(2010 -- actuarial losses of $28.3, net of tax). The measurement date
used for the accounting valuation of our pension plans was
December 31, 2011.
11. OTHER CHARGES
Three months ended
December 31
Year ended
December 31
2010
2011
2010
2011
Restructuring (a)
...............................................................
$ 6.9
$ 7.7
$ 35.8
$ 14.5
Asset impairment (b)
..........................................................
9.1
--
9.1
--
Loss on repurchase of Notes (note 8(b)) ..............................
--
--
8.8
--
Recovery of damages (c)
....................................................
(2.1)
(5.2)
(2.1)
(5.2)
Other (d)
............................................................................
(0.2)
(1.5)
(1.7)
(2.8)
$ 13.7
$ 1.0
$ 49.9
$ 6.5
(a) Restructuring:
Our restructuring actions included consolidating facilities and reducing
our workforce. During the fourth quarter of 2011, we recorded
restructuring charges of $7.7, primarily for employee termination costs
associated with restructuring actions we announced in the quarter. Our
restructuring charges for 2011 were $18.2, primarily for employee
termination costs, offset partially by recoveries of $3.7 representing
gains from the sale of vacated properties and surplus equipment. Our
net restructuring charges were $14.5, slightly higher than our
estimated restructuring costs for 2011 of $10.7, reflecting additional
actions we announced in response to continued economic uncertainties.
During the fourth quarter and full year 2011, we paid employee
termination costs and lease payments totaling $3.6 and $21.6,
respectively. At December 31, 2011, our restructuring provision
consists of the following:
Employee termination costs
..................................................................................
$ 9.7
Contractual lease obligations and other costs, including accretion
............................
7.0
$ 16.7
We expect to pay the remaining employee termination costs during the
first half of 2012 and our contractual lease obligations over the
remaining lease terms through 2015.
(b) Annual impairment assessment:
We conduct our annual impairment assessment of goodwill, intangible
assets and property, plant and equipment in the fourth quarter of each
year or whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. We recognize an
impairment loss when the carrying amount of a CGU exceeds the
recoverable amount, which is determined as the greater of its
value-in-use and its fair value less cost to sell. In the fourth
quarter of 2011, we recorded no impairment against goodwill, intangible
assets, or property, plant and equipment as the recoverable amounts
exceeded their carrying amounts.
The process of determining the recoverable amount of a CGU is subjective
and requires management to exercise significant judgment in estimating
future growth rates and discount rates, among other factors. The
assumptions used in our annual impairment assessment are determined
based on past experiences adjusted for expected changes in future
conditions. Our major assumptions include projections of cash flows,
with primary emphasis on our 2012 plan and with consideration for our
strategic plan which extends to 2014. Both the 2012 plan and the
three-year strategic plan were approved by management and presented to
our board of directors. We used our weighted-average cost of capital
of approximately 13%, on a pre-tax basis, to discount our cash flows
and adjusted as necessary to reflect the projected growth rates in the
cash flows. If the remaining life of a CGU's primary asset extended
beyond 2014, we assumed the subsequent cash flows would be consistent
with the 2014 projections. Where applicable, we worked with independent
brokers to obtain the market prices to estimate our real property
values.
We performed a sensitivity analysis to identify the impact of changes in
key assumptions, including discount rates and projected growth rates.
We did not identify any reasonably probable changes in assumptions that
would result in material impairments to our CGUs.
In the fourth quarter of 2010, we recorded a non-cash impairment charge
of $9.1 primarily against computer software, intangible assets, and
property, plant and equipment in the Americas and Europe.
(c) Recovery of damages:
In 2009, we recorded a provision related to a recovery of damages upon
settlement of a class action lawsuit. Based on management's assessment
of the potential outcomes, we deemed this provision was no longer
necessary and released $5.2 during the fourth quarter of 2011 (fourth
quarter of 2010 -- release of $2.1) through other charges.
(d) Other:
Other is comprised of recoveries on certain assets that were previously
written down through other charges and acquisition-related transaction
costs. During the fourth quarter of 2011, we reduced the fair value of
our contingent liability by $1.3 related to our Allied Panels
acquisition and recorded the recovery through other charges. See note
4.
12. RELATED PARTY TRANSACTIONS
Onex Corporation (Onex) owns, directly or indirectly, all of our
outstanding multiple voting shares. Accordingly, Onex generally has the
power to control the outcome of matters on which shareholders are
entitled to vote. Gerald Schwartz, the Chairman and Chief Executive
Officer of Onex and one of our directors, owns multiple voting shares
of Onex carrying the right to elect a majority of Onex's board of
directors.
We have manufacturing agreements with two companies related to or under
the control of Onex or Gerald Schwartz (2010 -- one company). During
the fourth quarter and full year 2011, we recorded revenue of $29.5 and
$90.9, respectively, from these companies (fourth quarter and full year
2010 -- $11.0 and $43.3). At December 31, 2011, we had $15.5 due from
these companies (December 31, 2010 -- $4.9). All transactions with
these companies were in the normal course of operations and were
recorded at the exchange amounts as agreed to by the parties based on
arm's length terms.
In January 2009, we entered into a Services Agreement with Onex for the
services of Gerald Schwartz, as a director of Celestica. The term of
this agreement was for one year and it automatically renews for
successive one-year terms unless either party provides a notice of
intent not to renew. Onex receives compensation under the Services
Agreement in an amount equal to $0.2 per year, payable in deferred
share units in equal quarterly installments in arrears.
13. INCOME TAXES
Our effective tax rate can vary significantly quarter-to-quarter for
various reasons, including the mix and volume of business in lower tax
jurisdictions within Europe and Asia, in jurisdictions with tax
holidays and incentives, and in jurisdictions for which no deferred
income tax assets have been recognized because management believed it
was not probable that future taxable profit would be available against
which tax losses and deductible temporary differences could be
utilized. Our effective tax rate can also vary due to the impact of
foreign exchange fluctuations and changes in our provisions related to
tax uncertainties.
During the second quarter of 2011, we formally settled the tax audits
related to the years 1999 through 2008 of one of our Hong Kong
subsidiaries for the amounts previously accrued. During the second
quarter of 2010, we recorded an adjustment relating to these tax audits
which had the effect of increasing the effective tax rate for the year
ended December 31, 2010.
During the fourth quarter of 2011, we formally settled the tax audits
related to the years 2001 through 2006 and 2009 of one of our Malaysian
subsidiaries. As a result, we released provisions previously recorded
for Malaysian tax uncertainties. In addition, we recognized a deferred
tax recovery in Canada for an investment that we wrote off relating to
a restructured subsidiary.
14. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Our financial assets are comprised primarily of cash and cash equivalents, accounts
receivable and derivatives used for hedging purposes. Our financial
liabilities are comprised primarily of accounts payable, certain
accrued and other liabilities and provisions, and derivatives. The
majority of our financial liabilities are recorded at amortized cost
except for derivative liabilities, which are measured at fair value.
Our term deposits are classified as held-to-maturity and our short-term
investments in money market funds are recorded at fair value, with
changes recognized through our consolidated statement of operations.
Cash and cash equivalents are comprised of the following:
December 31
December 31
2010
2011
Cash
.................................................................................
$ 242.6
$ 191.7
Cash equivalents
................................................................
390.2
467.2
$ 632.8
$ 658.9
Our current portfolio consists of bank deposits and certain money market
funds that hold primarily U.S. government securities. The majority of
our cash and cash equivalents are held with financial institutions each
of which had at December 31, 2011 a Standard and Poor's rating of A-1
or above.
Currency risk:
Due to the global nature of our operations, we are exposed to exchange
rate fluctuations on our financial instruments denominated in various
currencies. The majority of our currency risk is driven by the
operational costs incurred in local currencies by our subsidiaries. We
manage our currency risk through our hedging program using forecasts of
future cash flows and balance sheet exposures denominated in foreign
currencies.
Our major currency exposures at December 31, 2011 are summarized in U.S.
dollar equivalents in the following table. We have included in this
table only those items that we classify as financial assets or
liabilities and which were denominated in non-functional currencies.
In accordance with the financial instruments standard, we have excluded
items such as retirement benefits and income taxes. The local currency
amounts have been converted to U.S. dollar equivalents using the spot
rates at December 30, 2011.
Chinese
renminbi
Thai
baht
Canadian
dollar
Mexican
peso
Cash and cash equivalents
...............................................
$ 25.9
$ 5.0
$ 5.7
$ 0.5
Accounts receivable
..........................................................
19.4
--
3.9
--
Other financial assets
.......................................................
1.6
0.3
--
0.6
Accounts payable and certain accrued and other liabilities
and provisions
...................................................................
(37.2)
(15.3)
(42.3)
(14.6)
Net financial assets (liabilities)
............................................
$ 9.7
$ (10.0)
$ (32.7)
$ (13.5)
Foreign currency risk sensitivity analysis:
At December 31, 2011, a one-percentage point strengthening or weakening
of the following currencies against the U.S. dollar for our financial
instruments denominated in non-functional currencies is summarized in
the following table. The financial instruments impacted by a change in
exchange rates include our exposures to the above financial assets or
liabilities denominated in non-functional currencies and our foreign
exchange forward contracts.
Chinese
renminbi
Thai
baht
Canadian
dollar
Mexican
peso
Increase (decrease)
1% Strengthening
Net earnings ......................................................
$ 0.4
$ --
$ 1.8
$ (0.2)
Other comprehensive income ..............................
--
1.2
1.1
0.4
1% Weakening
Net earnings .......................................................
(0.4)
--
(1.7)
0.2
Other comprehensive income ...............................
--
(1.2)
(1.1)
(0.4)
At December 31, 2011, we had forward exchange contracts to trade
U.S. dollars in exchange for the following currencies:
Currency
Amount of
U.S. dollars
Weighted average
exchange rate of
U.S. dollars
Maximum
period in
months
Fair value
gain/(loss)
Canadian dollar
.........................................................
$ 349.6
$ 0.98
15
$ (2.0)
Thai baht
...................................................................
144.2
0.03
15
(4.7)
Malaysian ringgit
........................................................
97.4
0.32
15
(2.4)
Mexican peso
.............................................................
49.7
0.08
12
(3.0)
Chinese renminbi .......................................................
33.9
0.16
12
(0.2)
British pound
..............................................................
33.4
1.54
4
0.1
Singapore dollar
........................................................
19.8
0.80
12
(0.6)
Euro
..........................................................................
14.8
1.29
4
--
Japanese yen
............................................................
14.0
0.01
3
--
Romanian lei
..............................................................
10.8
0.32
12
(0.8)
Other
.........................................................................
8.9
--
4
(0.3)
Total
..........................................................................
$ 776.5
$ (13.9)
At December 31, 2011, the fair value of these contracts was a net
unrealized loss of $13.9 (December 31, 2010 -- net unrealized gain of
$13.0). Changes in the fair value of hedging derivatives to which we
apply cash flow hedge accounting, to the extent effective, are deferred
in OCI until the expenses or items being hedged are recognized in our
consolidated statement of operations. Any hedge ineffectiveness, which
at December 31, 2011 was not significant, is recognized immediately in
the consolidated statement of operations. At December 31, 2011, we
recorded $2.0 of derivative assets in other current assets and $15.9 of
derivative liabilities in accrued and other current and non-current
liabilities. The unrealized gains and losses are a result of
fluctuations in foreign exchange rates between the date the currency
forward contracts were entered into and the valuation date at period
end.
15. CONTINGENCIES
Litigation
In the normal course of our operations, we may be subject to lawsuits,
investigations and other claims, including environmental, labor,
product, customer disputes and other matters. Management believes that
adequate provisions have been recorded in the accounts where required.
Although it is not always possible to estimate the extent of potential
costs, if any, management believes that the ultimate resolution of such
matters will not have a material adverse impact on our results of
operations, financial position or liquidity.
In 2007, securities class action lawsuits were commenced against us and
our former Chief Executive and Chief Financial Officers, in the
United States District Court of the Southern District of New York by
certain individuals, on behalf of themselves and other unnamed
purchasers of our stock, claiming that they were purchasers of our
stock during the period January 27, 2005 through January 30, 2007. The
plaintiffs allege violations of United States federal securities laws
and seek unspecified damages. They allege that during the purported
period we made statements concerning our actual and anticipated future
financial results that failed to disclose certain purportedly material
adverse information with respect to demand and inventory in our Mexican
operations and our information technology and communications divisions.
In an amended complaint, the plaintiffs added one of our directors and
Onex as defendants. On October 14, 2010, the District Court granted the
defendants' motions to dismiss the consolidated amended complaint in
its entirety. The plaintiffs appealed to the United States Court of
Appeals for the Second Circuit the dismissal of its claims against us,
our former Chief Executive and Chief Financial Officers, but not as to
the other defendants. In a summary order dated December 29, 2011, the
Court of Appeals reversed the District Court's dismissal of the
consolidated amended complaint and remanded the case to the District
Court for further proceedings. Parallel class proceedings, including a
claim issued in October 2011, remain against us and our former Chief
Executive and Chief Financial Officers in the Ontario Superior Court of
Justice, but neither leave nor certification of any actions has been
granted by that court. We believe the allegations in the claims are
without merit and we intend to defend against them vigorously. However,
there can be no assurance that the outcome of the litigation will be
favorable to us or that it will not have a material adverse impact on
our financial position or liquidity. In addition, we may incur
substantial litigation expenses in defending the claims. We have
liability insurance coverage that may cover some of our litigation
expenses, potential judgments or settlement costs.
Income taxes
We are subject to tax audits and reviews by various tax authorities of
historical information which could result in additional tax expense in
future periods relating to prior results. Reviews by tax authorities
generally focus on, but are not limited to, the validity of our
inter-company transactions, including financing and transfer pricing
policies which generally involve subjective areas of taxation and a
significant degree of judgment. If any of these tax authorities are
successful with their challenges, our income tax expense may be
adversely affected and we could also be subject to interest and penalty
charges.
In connection with ongoing tax audits in Canada, tax authorities have
taken the position that income reported by one of our Canadian
subsidiaries in 2001 through 2004 should have been materially higher as
a result of certain inter-company transactions.
In connection with a tax audit in Brazil, tax authorities have taken the
position that income reported by our Brazilian subsidiary in 2004
should have been materially higher as a result of certain inter-company
transactions. If Brazilian tax authorities ultimately prevail in their
position, our Brazilian subsidiary's tax liability would increase by
approximately 43.5 million Brazilian reais (approximately $23.2 at
current exchange rates). In addition, Brazilian tax authorities may
make similar claims in future audits with respect to these types of
transactions. In June 2011, we received a ruling from the Brazilian
Lower Administrative Court that was largely consistent with our
original filing position. As the ruling generally favored the
taxpayer, the matter has been sent to a court of appeals. We have not
accrued for any potential adverse tax impact for the 2004 tax audit as
we believe our Brazilian subsidiary has reported the appropriate amount
of income arising from inter-company transactions.
We have and expect to continue to recognize the future benefit of
certain Brazilian tax losses on the basis that these tax losses can and
will be fully utilized in the fiscal period ending on the date of
dissolution of our Brazilian subsidiary. While our ability to do so is
not certain, we believe that our interpretation of applicable Brazilian
law will be sustained upon full examination by the Brazilian tax
authorities and, if necessary, upon consideration by the Brazilian
judicial courts. Our position is supported by our Brazilian legal tax
advisors. A change to the benefit realizable on these Brazilian losses
could increase our net future tax liabilities by approximately 55.5
million Brazilian reais (approximately $29.6 at current exchange
rates).
Tax audits for the years 2001 through 2006 and 2009 of one of our
Malaysian subsidiaries were closed in 2011 without any significant
adjustments. As a result of our successful defenses, we have released
provisions previously recorded for Malaysian tax uncertainties of 31.9
million Malaysian ringgit (approximately $10.0 at current exchange
rates).
The successful pursuit of the assertions made by any taxing authority
related to the above noted tax audits or others could result in us
owing significant amounts of tax, interest and possibly penalties. We
believe we have substantial defenses to the asserted positions and have
adequately accrued for any probable potential adverse tax impact.
However, there can be no assurance as to the final resolution of these
claims and any resulting proceedings and if these claims and any
ensuing proceedings are determined adversely to us, the amounts we may
be required to pay could be material.
Japan
The major earthquake and tsunami in Japan in March 2011, including the
aftermath of those events, affected our local operations in the first
quarter of 2011. Our manufacturing facility in Miyagi, Japan was
damaged and operations were interrupted for approximately two weeks in
March 2011. Production had resumed by the end of the first quarter. We
have filed an insurance claim which exceeds the carrying value of the
damaged assets. Any excess of the insurance proceeds above the carrying
value of the damaged assets will be recorded in the period the
insurance claim is resolved.
SOURCE Celestica Inc.For further information: <table border="0"> <tr> <td> Laurie Flanagan<br/> Celestica Communications<br/> (416) 448-2200<br/> <a href="mailto:media@celestica.com">media@celestica.com</a> </td> <td> Manny Panesar<br/> Celestica Investor Relations<br/> (416) 448-2211<br/> <a href="mailto:clsir@celestica.com">clsir@celestica.com</a> </td> </tr> </table> <p> </p>

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